If you’ve bought something online recently (and who among us hasn’t?), you most likely haven’t paid any internet sales tax on the purchase. Well, if Congress – pushed in large part by bricks-and-mortar retailers and cash-strapped states – has their way, that’s about to change.
Under current law (determined by a 1992 Supreme Court decision), a state can only require a retailer to collect sales tax on purchases when the retailer has a physical location in its state. That means that a lot of the big box stores – like Target or Wal-Mart or Kohl’s – will charge you sales tax whether you buy in-store or you buy online, because they all have locations in virtually every state.
But then you have what is arguably the biggest superstore in the country, Amazon.com, which only has locations in a few states (because their locations are limited to distribution centers from which your order gets shipped or their home offices). Until now, Amazon and other online stores like eBay have been exempt from collecting sales tax. This means that if you’re going to buy an item that’s sold both on Walmart.com or Amazon.com and it’s the same price, why wouldn’t you buy it on Amazon.com and save yourself the price of the sales tax. Great logic for consumers, right?
But, of course, it’s not the consumers who are driving this particular train. It’s the brick-and-mortar stores and the states and the National Retail Federation, which makes the point that if a small retailer has to collect sales tax on any sale they make, why shouldn’t all retailers have to do the same? And states that are facing budget deficits and decreasing tax revenues are looking for ways to bring additional money into their coffers. Requiring online retailers to start collecting sales tax on any product sold over the internet (or, for that matter, via a catalog or through a television ad) would mean more money for these states. According to information posted on USA Today’s website, over $11 billion in sales taxes was uncollected in 2012 (according to the University of Tennessee) on the $226 billion annual sales of goods and merchandise online.
eBay is leading the fight against the proposed law (known as the Marketplace Fairness Act), saying that there’s a big difference between a giant nationwide retailer that has stores in virtually every state and a smaller internet retailer that is usually based in just one state but may ship to all states. eBay thinks this puts an undue burden on small businesses.
The bill (which passed the Senate with bi-partisan support but faces a tougher fight in the House, where conservatives view it as a tax increase) would exempt smaller businesses with less than $1 million in online sales from collecting sales tax. eBay wants that changed to exempting online businesses with up to $10 million in sales or with fewer than 50 employees.
Opponents of the bill also say that it would be an undue burden on smaller retailers that are not set up to collect and remit sales tax (calculated at different rates, according to each state’s law) to each of the states it may have customers in. And the House version of the bill still has to go through the Judiciary Committee and its chairman, Bob Goodlatte, a Republican from Virginia, has already indicated his concerns with the obligations the bill would place on small businesses. President Obama supports the bill and his White House spokesperson, Jay Carney, has said he’d sign the bill if it passes both the House and the Senate because it would level the playing field for all businesses.
As this bill makes its way through the House, expect to hear more rhetoric from both sides. We’ll keep you posted.